EU pensions gender gap: inequality set for long term

A new report from HR consultants, Mercer, highlights the significant difference between male and female pension pots, and outlines actions government and businesses can take to bridge the gap.

Ruth Holmes

13 June 2017

Basing its analysis on the European Commission’s Report on Equality Between Women and Men, Mercer reports in its new study, The Gender Pension Gap: From awareness to action that a retired woman living in the EU receives on average 40 per cent less retirement income than a male counterpart.While the retirement income gap varies widely from one member state to another (from 4% to 49%), half of EU countries have gaps of 30 per cent or more. This means women face a greater risk of poverty and a greater chance that they will require assistance from the state later in life.

Long-term impact of pensions inequality

Mercer believes that government and businesses’ failure to address substantial gender pension gaps could generate long-term problems.“Not only an urgent challenge for governments and policy makers, the pensions gap should also be front of employers’ minds,” said Mandy Schreuder, diversity and inclusion (D&I) consultant at Mercer. “Women live longer, but with lower levels of savings they face a higher risk of retiring into poverty than their male counterparts.“The gender pay gap may be a hot topic at the moment, but few of us consider the impact it has, in combination with career breaks, on the financial wellness of women in retirement. Coupled with an ageing Europe workforce this challenge will be highly relevant to companies over the coming years."

Addressing the pensions issue brings benefits

Ms Schreuder continued: “Companies that acknowledge and work to close this gap could reap the benefits of increased employee engagement and productivity. Working to improve the financial position of its female workforce is not only key to protecting business productivity and improving female talent attraction and retention, it is also the right thing to do.“From a policy perspective we welcome the initiative of the European Commission to include a right to equal opportunities for acquiring pension rights in its recent Recommendation for a European Pillar of Social Rights.”As well as attracting attention to the issue, Mercer’s study outlines the causes of the disparity and what employers can do to mitigate the pensions gaps. A good balance of legislative and non-legislative initiatives is required to ensure women participate in the workforce as they grow older and accrue adequate pensions, says Mercer.

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Overcoming disparities by rethinking pensions

In response to most pensions in the EU being income-linked, which means that people earning less, working part-time or taking career breaks save less for their pension, some company retirement savings plans try to bridge the gap. However, Mercer’s research shows that less than 10 per cent of organisations offer retirement or savings programmes customised to different working patterns.Eve Read, principal, head of proposition, DC & financial wellness commented: “Most retirement plans are designed for a 40-year long, continuous, full-time career with few breaks and do not reflect women's divergent needs. Companies should review their benefits plans and communications through a gender lens to ensure they address the specific issues and needs of the female workforce.”For businesses, Mercer suggests this means accelerating their gender diversity efforts by implementing robust pay equity processes, supporting all employees through and on return from the various parental leave types, and more.“As described in Mercer’s When Women Thrive, Businesses Thrive research, it is time for employers to take action on this topic, in different ways than have been done previously," says Mandy Schreuder."Organisations should diagnose their current state by analysing their hiring, promotion and exit data and understanding what is helping and or impeding their efforts. Leadership at all levels should be engaged in driving this topic, and they must take action to ensure the right practices and processes are in place to support their female employees."

Pensions education

More targeted pensions conversation tailored to the reality of working lives and their financial implications are also needed, says Mercer. Recalling research on this issue, it notes women tend to display less confidence when making financial decisions and are more cautious about taking risks than their male counterparts.Data from Mercer’s Master Trust showing women to be 62 per cent more likely than men to invest in a defensive fund, which has a lower expected level of growth. Risk aversion can lead to lower volatility in the pension saved. However, it can also significantly reduce the final outcome.“The root causes behind women’s risk aversion and lack of financial confidence are multidimensional and complex but action-orientated financial education should be at the heart of the solution,” said Ms Read.“We have found that benefits communication that is based on a woman’s individual circumstances is more likely to get her attention and to subsequently take positive action. Personalising the message and using language that is more engaging for women could help them make investment decisions that produce higher long-term returns that are more aligned with their needs and ambitions.”